Political Economy Workshop (Gov 3007)

Arthur Silve will present his job market paper “Democratic Spillovers”. Abstract for “Democratic Spillovers” Political institutions in separate countries influence each other. This paper examines the role of capital mobility as one such channel of mutual influence. Elite groups can extract rents from their populations. However, capital can be shifted towards countries with less extractive policies. This aff ects the political trajectory of countries with rent-seeking elite. (1) When the ownership of capital is distributed widely in the population, capital mobility disciplines the elite, and helps capital owners buy their way into the elite. (2) Conversely if the ownership of capital is limited to the elite, they may take advantage of the efficient policies abroad while increasing rent extraction on captive assets at home. (3) A small country in a position to set up reliable institutions may become a tax haven to attract the capital held by foreign elite. In turn, these three mechanisms degrade the institutions and policies of the efficient countries.